Shares of Alibaba (NYSE:BABA) are down around 2% today after a Citi analyst cut her price target. A broader market decline on Wednesday is not helping matters, particularly as tech gets hit harder than the S&P 500.
In any regard, Citi analyst Alicia Yap lowered her Alibaba stock price prediction from $200 down to $177. Despite the price target reduction, she maintained her “buy” rating. She notes that Covid-19 numbers are on the rise in China, which is slowing down economic activity in the country. Unfortunately, that will likely persist throughout the short to intermediate term.
China’s Covid-19 situation has been causing issues for several companies beyond Alibaba as well. For instance, Tesla (NASDAQ:TSLA) is also being affected by the rising case count. Its Shanghai-based Gigafactory 3 has had to halt temporarily production due to lockdowns. Further, China is hitting record Covid-19 numbers since the start of the pandemic. Tuesday had more than 16,000 new cases, while more than 80% of the new daily cases come from Shanghai.
Yap also said Alibaba has likely seen a slowdown in some of its investment subsidies, while EBITDA (earnings before interest, taxation, depreciation and amortization) is likely to “remain under pressure.”
So why maintain the “buy” rating despite slashing the Alibaba stock price prediction?
Despite the short-term headwinds, there are positives. Alibaba has a strong cash flow and the stock is, in her words, hitting a “historical trough.” For Yap, this makes the stock “attractive” over the long-term.
Like many Chinese equities, BABA stock has been struggling. Despite the recent rally, shares are still down 66% from the all-time high from late 2020. That’s as the company began butting heads with the Chinese government, triggering several retaliations from the latter.
While Alibaba trades in both the US and China, it hasn’t stopped investors from bailing on the name. Particularly here in the US, investors have grown uncomfortable with the impact that the Chinese government can have on business operations and the stock price. As a result, Alibaba stock has fallen to a level that many investors never thought was possible.
Despite the price target reduction, BABA stock still trades well below Citi’s target. In fact, Yap’s price target represents about 67% upside from current levels. If investors can look past the regulatory and government-related risks, then Alibaba may be a solid long-term pick.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
